CIR v.

General Foods
Gen. Foods, manufacturer of Tang, claimed as deduction among other business
expenses, an amount for media advertising of Tang. CIR disallowed 50% of such
amount and was assessed deficiency income taxes. CTA ruled in favor of Gen.
Foods. In reversing the decision, the SC said that to be deductible from gross
income, the subject advertising expense must comply with the following
requisites:
(a) the expense must be ordinary and necessary;
(b) it must have been paid or incurred during the taxable year;
(c) it must have been paid or incurred in carrying on the trade or business
of the taxpayer; and
(d) it must be supported by receipts, records or other pertinent papers.
In this case, the subject advertising expense was not ordinary on the ground that
it failed the two conditions: first, reasonableness of the amount incurred and
second, the amount incurred must not be a capital outlay to create goodwill for
the product and/or private respondents business. Otherwise, the expense must be
considered a capital expenditure to be spread out over a reasonable time.
There is yet to be a clear-cut criteria or fixed test for determining the
reasonableness of an advertising expense. There being no hard and fast rule on
the matter, the right to a deduction depends on a number of factors such as but
not limited to: the type and size of business in which the taxpayer is engaged; the
volume and amount of its net earnings; the nature of the expenditure itself; the
intention of the taxpayer and the general economic conditions. It is the interplay
of these, among other factors and properly weighed, that will yield a proper
evaluation.